Optimal low-price guarantees with anchoring

Morten Hviid, Greg Shaffer

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


Many low-price guarantees are offered by small local firms who compete against much larger rivals. The prices of these larger rivals are often set nationally and thus are independent of local market conditions. Our objective in this paper is to explain why small firms in such environments might nevertheless adopt low-price guarantees. We characterize when offering a low-price guarantee is profitable, and assess which form it should take (i.e., conditional on offering a low-price guarantee, should the small firm offer to match or beat its larger competitor’s prices). We also assess the implications thereof (i.e., do the low-price guarantees benefit or harm the small firm’s customers).
Original languageEnglish
Pages (from-to)393-417
Number of pages25
JournalQuantitative Marketing and Economics
Issue number4
Publication statusPublished - 2012

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